The plan of resuscitation of sustainable and bankruptcy of problematic

By Leonidas Stergiou

Bank of Greece, banks, loan management companies, Ministry of Finance agreed on the most effective management of red loans and the final clearing between problematic companies that can become viable and businesses- “zombies”. The plan envisages drastic solutions for the growth of bankable enterprises, mainly in the field of small and medium enterprises, through debt restructuring, but also the creation of new eligible enterprises for financing through the NSRF and the Hellenic Development Bank.

The plan envisages three phases, with the first two to be completed within 2022 and the third, ie the organic expansion of the perimeter of bankable enterprises, either through consolidation or through interim financing programs, to have the first visible results in 2023.

NPL Forum

One of the issues that had started from the time of the memorandum obligations was the management of large companies that were facing problems with the banks. They mainly concerned large groups that had been co-financed by the four systems, either separately or through syndicated loans. This project was assigned to a group of banks and HFSFs known as the NPL Forum.

During the last meeting at the Bank of Greece, the team informed that all cases have now been settled. The reorganization or bankruptcy process may not have been completed, but in all cases the solutions have been found, in consultation with the creditors and the companies themselves.

Those for which solutions have been given are, for example, the consolidation of Feida and Notos, or Euromedica that was sold to a foreign group, etc. Other such cases, where the way of consolidation has been found, as viability is established, are the Shipyards, ANEK. Also, in this Forum belonged the case of Creta Farms etc. Solutions can range from significant haircuts and refinancing to the sale of assets or the sale of the company itself. But there are also cases where bankruptcy was chosen as a solution.

Therefore, in the near future, we will see strong mobility from banks with large companies, for which, if deemed viable, they will launch deals, asset sales and refinancing. The goal is to complete the consolidations or bankruptcies of large companies by 2022. The second big goal is to create more bankable companies by consolidating sustainable small and medium enterprises, but also through proposals processed by the head of the Hellenic Development Bank, Mrs. Athena Hatzizou and the sub. Development and Investment, Mr. Giannis Tsakiris, through the NSRF.

The next steps

Through the experience of the NPL Forum for large companies but also from the first years of managing red loans to smaller companies, banks and servicers identify issues that need to be addressed.

A number of issues relate to the state, such as bureaucracy and the speed with which mortgage proceedings are handled. The state may have digitized and real estate transfers done electronically, but a sale-transfer contract can take up to a year, as a TAP certificate from a municipality can take up to six months. For all these and similar issues, the assistance of the Ministry of Finance was requested, as the meeting was attended by the Special Secretary for Private Debt Management, Mr. Fotis Kourmousis. For its part, the State is called upon to resolve the issue of delays in the administration of justice.

Small and medium working group

Another team is undertaking the task of intensively regulating and supporting sustainable small and medium-sized enterprises, managing red loans more effectively and identifying unresolved cases. The head of this group is the president of the loan management companies and vice president of doValue, Mr. Anastasios Panousis, and Mr. Elias Plaskovitis from the side of the Bank of Greece.

This team has already identified issues for improvement, as well as solutions. The current situation is as follows:

First, the consolidation of red loans by servicers. After 2-3 years they can return to the banks, but as high-risk loans with high provisions (costs). The SSM is requested to reduce this time.

Secondly, the bank that sold the loans and they were repaid can not buy them, according to the SSM. But another bank can buy them. This can create a secondary market for selling “cured” loans or a portfolio of green and red, ie an NPL market. Profits are expected from the sales for the management companies (treated or regulated loans will have a higher selling value than the one in which they were purchased). The NPL secondary market will start in 2022.

Thirdly, from the profits and revenues of the management companies there will be the possibility for bigger haircuts and bigger extensions in the durations and interest rate reductions in the viable, only, cases. This will give breath to the regulated company, as it will create internal capital, ie refinancing of its expenses (debt service costs are reduced). This solution is already underway.

Fourth, The management companies will be able to obtain a license from the Bank of Greece, so that they can proceed with refinancing loans. For example, a company has a red loan in a bank. The management company can repay the bank and get the red loan of the company, which will then settle it with a viable solution, ie through intermediate financing and self-financing (through cash flows and reduction of borrowing costs). This loan will also be able to be sold at a higher price. This is expected to happen in about two years.

Fifth, The case of refinancing loans by management companies currently faces two main technical problems in order to be activated immediately. The first problem is related to the cost of liquidity, because management companies do not accept deposits. So the cost of money for them is double digits. This, however, can be mitigated by previous moves or by collaborations with banks. However, a management company that works closely with a system seeks to address the issue of funding more directly.

Sixth, for non-viable cases, the new bankruptcy can not always be a solution, because the ownership of the small business is identified with the management and the property of the business. Bankruptcy law and second chance can not work without the consent of the debtor business.